The future of the Advanced Gas-cooled Reactors

This is a House of Commons Committee report, with recommendations to government. The Government has two months to respond.

Third Report of Session 2022–23

Author: Committee of Public Accounts

Related inquiry: Future of the Advanced Gas-cooled Reactors

Date Published: 20 May 2022

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The UK has eight second generation nuclear power stations accounting for around 16% of total UK electricity generation in 2020. These stations are owned by EDF Energy (EDFE) following its purchase of British Energy in 2009. The stations comprise seven Advanced Gas-cooled Reactor (AGR) stations, all of which are planned to stop generating electricity by 2028, plus the Pressurised Water Reactor (PWR) at Sizewell B. In 1996, government established the Nuclear Liabilities Fund (the Fund) to meet the cost of decommissioning these eight stations. The aim of the Fund is to generate returns from investments that will meet the costs of decommissioning. As at March 2021, the Fund’s assets were valued at £14.8 billion and the estimated decommissioning costs of these eight stations was £23.5 billion. The government has provided a guarantee to underwrite the Fund in the event that its assets are insufficient to meet the total costs of decommissioning.

The arrangements for decommissioning the stations have been governed by a series of agreements between the Fund, the Department for Business, Energy & Industrial Strategy (the Department) and the station owners. In late 2017, the Department entered into negotiations with EDFE to revise the agreements for the seven AGR stations. The agreement was finalised in June 2021. Under the revised agreements EDFE will defuel each of the stations after they have closed, as previously planned. The Department has, however, agreed financial incentives to encourage EDFE to accelerate defueling and transfer of the stations. This includes EDFE earning up to £100 million for good performance but paying out up to £100 million for poor performance. Ownership of the stations will then be transferred to the Nuclear Decommissioning Authority (NDA) to complete the decommissioning process. The Department estimates the new agreements could save the taxpayer up to £1 billion compared with the previous agreements.

Following our evidence session, we engaged in a series of follow-up correspondence with the Department and HM Treasury. A chronological list of this can be found in Annex 1 at the back of this report.

Conclusions and recommendations

1. Government’s investment strategy for the Fund has delivered poor returns and has resulted in the taxpayer having to top-up the Fund with an additional £10.7 billion in just two years. As at March 2021, the total value of the Fund was £14.8 billion, of which around 80% was invested in the National Loans Fund which in recent years has earned a very low return. In contrast, the Fund’s investments in private sector assets, which are about £3 billion, have generated returns of 6.2% on average in the three years to 2020–21. The Department told us that the low performance of the Fund had been clear for some time but that it had received a clear instruction from HM Treasury about the investment approach to be taken. The Fund has for the last seven years failed to meet the target return judged necessary by the Fund trustees to meet the expected costs of decommissioning. As a result, the taxpayer has had to step in to strengthen the position of the Fund. In 2020–21 government provided a £5.1 billion top up because of increases in decommissioning costs and low returns from the investments. Following an increase in the rate of corporation tax, HM Treasury agreed to provide a further £5.6 billion of taxpayer support in 2022. Both top-ups have been made on condition that the money is invested in the National Loans Fund with a very low return. However, HM Treasury and the Department informed us that top-up funds placed in the National Loans Fund do not have an impact on the taxpayer at the current time as they are transfers within the Exchequer and do not require cash to be raised or ringfenced at the point of investment. However, this means that the investments in the National Loans Fund do not represent a cash fund which the government is accumulating to pre-fund these liabilities. Any future drawings from the assets held in the National Loans Fund will require additional tax receipts to be raised from future taxpayers or Exchequer borrowing.

Recommendation: HM Treasury and the Department, working with the trustees of the Fund, should within twelve months review the investment approach and write to the Committee setting out the expected performance of the Fund based on the chosen investment strategy and the extent to which this will avoid further calls upon the taxpayer. The departments should set out the rationale underpinning the investment strategy, in particular the split between investment placed in the National Loans Fund earning a low return and the sum invested in higher performing private sector assets.

2. The estimated cost of decommissioning has nearly doubled since 2004–05 and there remains a significant risk that the costs will rise further. The estimated cost of decommissioning the AGR stations, plus the PWR at Sizewell B, has increased from £12.6 billion in 2004–05 to £23.5 billion in 2020–21 in real terms. There remain significant uncertainties that will need to be managed to prevent further increases in costs and ease pressures on the Fund. The cost of defueling will depend on the stations not closing significantly earlier than planned and how quickly they can be defueled once electricity generation ceases. EDFE’s latest decommissioning cost estimate excludes the early and unplanned closure of Dungeness B in June 2021, which could increase costs further by up to £1 billion. We have previously reported on the decommissioning of the Magnox stations, the first generation of nuclear stations, where uncertainty over the condition of the sites and how to approach the decommissioning task led to increases in estimated costs worth billions of pounds. However, we were informed that the Magnox stations have all now been defueled, furthermore Bradwell is the first Magnox station to enter the care and maintenance stage of the decommissioning process. The Department accepts that the circumstances of the AGR stations may change and therefore so would the estimates of the costs of decommissioning them.

Recommendation: As part of the 2022 revaluation of the decommissioning liabilities, the Department, working with the trustees of the Fund, should ensure the estimates make explicit allowance for the risk of optimism bias. The Department should report back to the Committee on the new estimates when they are available.

3. The terms of the 2009 sale of the nuclear stations agreed by the Department with EDFE placed a disproportionate amount of risk for meeting future decommissioning costs on the taxpayer. The negotiations surrounding the sale of the stations to EDFE in 2009 were focused on maintaining operations, with less attention paid to meeting the costs of decommissioning. Although EDFE successfully extended the lives of all the AGR stations, which bolstered the UK’s capacity to generate electricity, there was no requirement to extend the contributions made by the operator to the Fund despite increasing decommissioning costs. The history of the AGR stations and the operation of the Fund provides important learning for government for planning and funding the decommissioning of new nuclear stations. For example, around the need for planning for decommissioning from the beginning of a new nuclear programme and having mechanisms in place to adjust operator contributions to any decommissioning fund in line with changes to the estimated costs of decommissioning. The Department expects the financial risk associated with decommissioning future nuclear power stations to be lower than that experienced with the Magnox and AGR programmes as the need for decommissioning will have been built into the design from the start.

Recommendation: As proposals for building new nuclear stations are firmed up, the Department needs to learn lessons from AGR decommissioning for how the decommissioning of new nuclear stations will be funded, for example linking contributions more closely to reliable estimates of liabilities, and building in mechanisms for adjusting contributions from operators should estimates of liabilities increase.

In addition, the Department should report to the Committee within three months about what decommissioning improvements have been built into Hinkley Point C and what proposals there are for the proposed new small modular reactors.

4. EDFE’s timetable for the closure of the stations will result in a significant reduction in the UK’s generating capacity until new capacity comes online. In 2020, nuclear power accounted for 16% of UK electricity generation. The closure of seven nuclear stations by 2028 will therefore have a significant impact. EDFE considers that the AGR stations will be reaching the technical limit of safe operations and so their use could not be extended while we wait for new generating capacity of come online. Only the existing PWR station at Sizewell B and the new station at Hinkley Point C are expected to be operating when the last of the AGR stations closes. While the Department acknowledges there will be a gap in generating capacity, it is not concerned with there being a shortage owing to its confidence that electricity capacity could be bought from other sources ahead of time. The UK’s old nuclear station sites could be reused as locations for the development of new small modular reactors. Both NDA and EDFE told us they are in active discussions with parties interested in exploring these new opportunities.

Recommendation: The Department working with the Office for Nuclear Regulation, EDFE, and Ofgem should urgently review whether it would be technically feasible, safe, and cost-effective to extend the lives of any of the remaining operating stations if needed and report back to the committee within 4 months.

The Department and NDA should publish plans within 12 months setting out how they will make best use of NDA’s nuclear sites in future, including whether they are suitable for new nuclear infrastructure, such as modular reactors. In particular they should clarify how the transfer to the NDA from EDFE will allow for these Modular reactors.

5. We are not convinced the Department has struck the right balance in incentivising the NDA and EDFE to deliver safe and efficient defueling of the AGR stations on time while reducing costs. The Department has introduced financial incentives to encourage cost-efficient defueling and station transfer with EDFE potentially earning or paying out £100 million depending on its performance. EDFE estimates the costs of defueling could be between £3.1 billion and £8.0 billion. The speed at which it can be undertaken safely will dictate the final costs. Successful defueling will depend on all parties being ready and working together, including the NDA being ready to receive and dismantle the volume of fuel arriving at Sellafield. Any delays in the defueling process could result in costs increasing substantially. Key to successful delivery is that stations close as planned, as premature closure of a station would mean that it would not be ready to start accelerated defueling. Making provision for a station to do so early could disrupt existing plans for decommissioning the rest of the AGR fleet. The early and unplanned closure of Dungeness B in 2021 has increased the estimated defueling costs by between £0.5 billion and £1.0 billion. There are significant risks to be managed and we are not convinced the Department’s financial incentive for EDFE to earn or lose up to £100 million, primarily directed at accelerated defueling, is sufficient to fully incentivise cost efficiency. The Department asserts that it has other measures it can use to direct EDFE but does not believe it will have to use them.

Recommendation: The Department should write to the Committee within six months outlining how it will assure itself that the incentives are working and setting out the actions it will take if the incentives are not working.

6. Arrangements for transferring nuclear stations to NDA are worryingly under-developed, and there is a risk that transfer negotiations between EDFE and NDA could drag on and increase the costs to the taxpayer. The first of the stations could transfer to the NDA as early as 2026. The NDA and EDFE believe there is sufficient time to prepare for the transfer of the sites. However, the negotiations between the Department and EDFE over the new decommissioning agreements did not provide clarity about what will be transferred to the NDA, when or how. Discussions between EDFE and the NDA to agree on the details only started in 2021. There is a risk that the costs associated with transfer to the NDA could increase. The issue of what happens to pension liabilities, for example, has yet to be worked through as are the precise details of the land and buildings to be transferred at each site. At the same as tying down these details, the NDA will need to develop its understanding of the sites and determine its preferred decommissioning strategy post-transfer. EDFE and NDA are currently working to identify and prioritise planning work for the transfer, but this is not yet complete.

Recommendation: Within the next six months the Department, following discussions with NDA and EDFE, should write to the Committee with a detailed plan and timetable for how the transfers will take place. This plan should cover all the major aspects of the transfer including land and people, and it should identify where uncertainties remain, how those uncertainties might affect costs, and when they are likely to be resolved.

7. Given the scale and complexity of decommissioning the AGR stations, we are concerned that the Department’s oversight of a complex set of governance arrangements is itself not subject to sufficient scrutiny and challenge. The Department is performing a variety of roles with regard to the decommissioning of the AGRs: it negotiated the decommissioning agreements with EDFE and has an ingoing role in ensuring the agreements work in the interest of the taxpayer; it is the sponsoring department of the NDA but will need to ensure that both the NDA and EDFE work effectively, for example to ensure that a site licence is granted by the regulator to the NDA prior to the handover of each station; and it has existing relationships with EDFE in relation to new nuclear projects. However, the centre of government has yet to put in place arrangements that can provide assurance that the Department is discharging its various responsibilities appropriately and that the decommissioning programme is performing effectively. The Department told us there were no immediate plans to include the programme in the Government Major Projects Portfolio (GMPP), which provides independent assurance of government’s riskiest or costly projects, but it expects it to do so when the stations transfer to the NDA. In the meantime, the Department is developing metrics that would be akin to GMPP to provide assurance to HM Treasury and Cabinet Office. However, these metrics have not yet been developed.

Recommendation: The Department should write to the Committee within the next six months setting out how it is assuring itself that it is discharging its oversight role effectively and detailing the current and future plans for reviewing the Department’s own performance.

In addition, despite the Department’s assertions to the contrary, it should write to the Committee and explain why it shouldn’t place the programme on GMPP at an earlier stage in the transfer phase from EDFE to NDA so it can benefit from advice on the adequacy of the proposed transfer terms between EDGE and the NDA.

1 Funding decommissioning of the AGR stations

1. On the basis of a report by the Comptroller and Auditor General, we took evidence from the Department for Business, Energy & Industrial Strategy (the Department), the Nuclear Decommissioning Authority (NDA) and EDF Energy (EDFE) on the decommissioning of the UK’s fleet of Advanced Gas-cooled Reactor (AGR) nuclear power stations.1

2. The UK has eight second generation nuclear power stations accounting for around 16% of total UK electricity generation in 2020. EDFE bought these stations in 2009 following the sale of British Energy, which had operated the stations since its privatisation in 1996. Seven of the stations are AGR stations which, under current plans, are expected to stop generating electricity by 2028.2 As part of the privatisation of these eight stations, the government established the Nuclear Liabilities Fund (the Fund) in 1996 to meet the cost of decommissioning, with contributions being made by the station owners during the operating life of the stations. The government has guaranteed to underwrite the Fund in the event the Fund’s assets are insufficient to meet the total costs of decommissioning.3

3. The arrangements for decommissioning the stations have been governed by a series of agreements between the Fund, the Department and the station owners. In June 2021, the Department entered into revised agreements with EDFE for the AGR stations. Under the revised agreements EDFE will defuel each station as previously planned following their closure. The Department has, however, agreed financial incentives to encourage EDFE to accelerate defueling and transfer of the stations. EDFE will be able to earn up to £100 million or incur penalties up to £100 million based on its performance. Under the new agreements, once defueling is complete the ownership of the stations will be transferred to the Nuclear Decommissioning Authority (NDA) to complete the long-term decommissioning process.4

The Nuclear Liabilities Fund’s investment strategy

4. The Fund aims to generate returns from investments that will over decades meet the decommissioning costs of the eight EDFE stations purchased in 2009 – seven AGR stations and a Pressurised Water Reactor.5 As at March 2021, the Fund’s assets were valued at £14.8 billion and the estimated cost of decommissioning the stations was £23.5 billion. In each of the last seven years the Fund has failed to meet the target investment return judged necessary by the Fund trustees to meet the costs of decommissioning.6 Around 80% of the Fund’s assets, equivalent to over £11.5 billion, are invested in the National Loans Fund, which is low risk but has in recent years generated very low returns, equivalent to a 0.1% return. The Fund’s remaining assets, equivalent to £3 billion, are held in a higher-risk, higher return investment portfolio, which in the three years to 2020–21 delivered an annual average return of 6.2%. The estimated cost of decommissioning nearly doubled in real terms between 2004–05 and 2020–21.7

5. Government has stepped in to provide substantial amounts of funding to top up the Fund rather than alter the investment strategy. In 2020, government provided £5.1 billion to the Fund, of which around half was required because of the result of low investment returns. Government expects to provide a further £5.6 billion top up in 2022 primarily to ensure the Fund will have sufficient assets to meet a recent increase in corporation tax.8 The Department wrote to us on 21 February to explain that HM Treasury has required the additional taxpayer funds to be invested in the National Loans Fund rather than allow money be taken from the National Loans Fund and be invested in private sector assets .9

6. We asked why the Department had not asked for a change to the investment strategy in light of the low investment returns, particularly as taxpayer top-ups are now being provided many years in advance of the money being required for decommissioning and where the value risks being eroded by inflation. It told us that it had been aware that Fund performance was falling short of target for quite some time, but that the investment approach had followed clear instructions from HM Treasury. It told us that moving investments out of the National Loans Fund would increase public sector net debt and that as the investment risk ultimately rested with the taxpayer it was not obvious that a higher return investment strategy was the right one. It suggested that government does not typically invest public funds in high-risk assets and that there is a balance to be struck.10 The Department told us that it expected a period of stability for the Fund following government’s second injection of £5.6 billion. It could not, however, rule out further taxpayer support in the longer term given the investment approach pursued.11

7. The Department and HM Treasury have explained that when a potential shortfall in the Fund is addressed by a top-up in the National Loans Fund this means that government credits the Fund with an additional deposit in the National Loans Fund, which also increases its liabilities accordingly. However, “no actual monies need raising, depositing or ringfencing since this deposit will be funded by transfer from within the Exchequer”. This means there is “no net economic or financial impact for the taxpayer” at the point of investment. It also means, that with the exception of the Fund’s assets outside the National Loans Fund, “there is no cash fund which the government is accumulating to pre-fund these liabilities”. Instead, “in cash terms the payments that will become due [from the National Loans Fund] in the future will be funded through a mixture of future tax receipts and Exchequer borrowing”. In contrast, if the top-up was instead invested in assets outside the National Loans Fund this would “require cash to be raised, increasing government debt at the point of investment”.12

The expected cost of decommissioning

8. The Committee has previously identified significant uncertainty regarding the estimation of decommissioning costs. We examined, for example, the NDA’s management arrangements for decommissioning the Magnox nuclear power stations in 2020 and identified significant difficulties estimating decommissioning costs. We concluded that the NDA did not have a full understanding of the sites meaning that there was significant uncertainty over how long decommissioning would take and how much it would cost.13

9. The estimated cost of decommissioning the AGR stations, plus the PWR at Sizewell B, increased from £12.6 billion in 2004–05 to £23.5 billion in 2020–21 in real terms. We asked the Department why the estimated cost of decommissioning the AGRs had increased to such an extent. The Department asserted that decommissioning costs will never be entirely certain as projecting decades into the future carries a degree of risk. It emphasised that circumstances will change and therefore the decommissioning estimate number could move up or down.14

10. There remain significant uncertainties which if managed poorly could increase decommissioning costs further. The estimated cost of defueling the seven stations, for example, ranges between £3.1 billion and £8 billion depending upon how quickly they can be defueled and how soon defueling starts once a station closes after stopping electricity generation. We asked the Department how certain it was about the expected costs and if either the worst case or best case scenarios were more likely than the other. The Department told us that its current estimate range for defueling was “deliberately built to be a balanced assessment” and that while costs could change over time, it was “not skewed towards either one at this moment”. The NDA explained that it and EDFE were “absolutely dedicated” to minimising costs. It explained that it was working with EDFE to defuel the stations safely and as quickly as possible.15 It recognised, however, that delays in the process would increase costs. For example, the estimated annual cost of an AGR station once it has been defueled is between £25 million and £35 million compared with £140 million if the station still has fuel in it. The NDA explained that the defueling process could also be impacted by the timing of station closures, as closures earlier than planned would increase pressure on the defueling programme.16

11. EDFE has recently brought forward the closure date for five out of the seven AGR stations. EDFE told us it expects the stations to stop operating at their current closure dates but acknowledged that early closure was always a risk. Dungeness B was due to close in 2028 but due to technical reasons shut in 2021. EDFE estimates that this early and unplanned closure will cost an additional £0.5 billion to £1.0 billion to defuel. The impact of this early closure was not included in the estimate of decommissioning costs of £23.5 billion reported at the end of 202–21. The Department confirmed that it expected the impact of the closure to be reflected in the next revision to the decommissioning estimates.17

Financial incentives for decommissioning

12. In 2015, the then Shareholder Executive, on behalf of the Department undertook a review of the arrangements with EDFE for decommissioning the AGR stations. It concluded that the existing agreements did not incentivise EDFE to look at more innovative or cost-effective ways to minimise decommissioning costs. Between late 2017 and June 2021, the Department negotiated new arrangements with EDFE which included a new incentive arrangement focused on defueling.18 Under the revised arrangements agreed between the Department and EDFE that govern the decommissioning of the AGR stations, the company can now earn a fee of up to £100 million for good performance, or it could lose up to £100 million for poor performance. Most of the financial incentive is devoted to incentivising accelerated defueling with the remainder for delivering a smooth transfer.19

13. A review commissioned by the Department during the negotiations suggested that the £100 million potential fee might not be enough incentive for EDFE to place greater focus on the AGR stations given the potential value of its other UK interests.20 We therefore queried whether the £100 million financial incentive was sufficient to incentivise EDFE, in particular to facilitate smooth station transfers where a maximum of £14 million is available.21 The Department told us that the £100 million incentive was a meaningful financial risk for EDFE. It acknowledged that the incentive might not be large compared to the billions of pounds at stake, but argued it was reasonable in incentivising station-level performance. The Department explained that it had split the £100 million incentive with £30 million for overall fleet performance and £70 million for individual stations, which followed advice it had received from its independent review which suggested that a substantial proportion of the incentive be directed at delivering station-level targets.22

14. The Department told us it did have other rights to direct EDFE, for example it has the power to change decommissioning plans. If the Department, for example, identified material cost saving opportunities of more than £5 million it told us it could instruct EDFE to do things in a different way. It did not, however, expect to use these rights and it did not think there was anything to indicate that it would be required to as NDA and EDFE had been working cooperatively so far.23 Ultimately, how quickly and efficiently the AGR stations can be defueled is dependent upon EDFE and NDA working together seamlessly. The NDA will, for example, have to be ready to transport AGR fuel and store it at Sellafield. The witnesses were positive about the joint working so far between EDFE, NDA and the Department to address potential bottlenecks in the defueling process.24

Lessons for new nuclear stations – balance of risk

15. The assets of the Fund have been created from the contributions made by the station operators, income from investments, capital injections from government and the proceeds from the sale of the Fund’s shares in British Energy. Despite EDFE extending the operating lives of all the AGR stations, its financial contributions to the Fund were agreed at the time of the sale of British Energy to EDFE in 2009. The deal the Department negotiated did not include the option to increase or extend the contributions made by the operator. We asked the Department if there were any circumstances in which station operators could be expected to increase their contributions to the Fund. The Department told us that it was not aware of any circumstances where this would be the case for AGR stations. It explained that it could have structured the 2009 deal differently and could have asked EDFE to increase its contributions over time, but that would have increased uncertainty and risk for EDFE and might have affected the sale value. It noted that EDFE had paid £12.5 billion for the AGR stations, and it was logical to assume that it might have paid less under a different agreement.25 The NAO found that the main focus of the sale of British Energy had been on continuing operations, with less consideration given to decommissioning.26

16. We asked why, given the amount of uncertainty surrounding the costs, and concerns about the adequacy of the Fund to cover this, the risks of decommissioning were being entirely borne by the taxpayer. The Department said that the £100 million agreed with EDFE was a meaningful financial incentive to manage, for example, the risks of defueling. It also argued that some of the issues were due to agreements made “decades and decades ago” and that it would structure these differently in future as part of the planning for new nuclear power stations to ensure that the risk falls much more strongly with the operator.27

17. The Department emphasised that it was applying significant learning from the experience of decommissioning the Magnox and AGR stations. For new nuclear stations a funded decommissioning plan has to be in place before construction begins. The Department told us that it was “building from the start with decommissioning in mind” and that this should mean that when the new nuclear stations cease operation there will be sufficient funds in place to carry out decommissioning.28 It also explained that new legislation also included provisions to enable provider contributions to be adjusted during the life of assets. The Department also expected that new technologies would mean that the proportion of whole-life costs accounted for by decommissioning would reduce for the new generation of nuclear reactors.29

2 Defueling and decommissioning the AGR stations

Impact of closures on generating capacity

18. Nuclear power contributed around 16% of the UK’s electricity in 2020. As at January 2022, five of the seven AGR stations and the Pressurised Water Reactor at Sizewell B are the only nuclear power stations in the UK currently generating electricity; two of the AGRs, Dungeness B and Hunterston B, closed in June 2021 and January 2022 respectively. A further station is expected to close in 2022, two more in 2024 and the remaining two in 2028. All of the AGR stations will close by 2028, with only Sizewell B and the new station at Hinkley Point C expected to be operating nuclear power stations at that point.30 We inquired whether the lives of the operational AGR stations could be extended as we wait for new generating capacity to come online. EDFE told us that when it bought the AGR stations in 2009 it invested a further £6 billion into extending their operating lives. It explained that it was working closely with the regulator to decide how much longer stations could operate to produce as much electricity as possible from the stations. But it noted that the stations were reaching the technical limits of running safely, having extended the original design life of these stations from 25 to over 40 years. It explained that it had “put in absolutely as much money as they [the stations] can usefully use in terms of the technical limitation” and it was confident that no further investment would allow the stations to be used for longer.31

19. The Department acknowledged there will be a production gap between existing nuclear stations closing and new ones coming online. However, it told us that it was not concerned about a lack of generating capacity during that period. It told us that the capacity market allowed electricity capacity to be bought well ahead of time, and had shown itself to be “very robust” in ensuring electricity generation needs are met. The Department also explained that Sizewell B would continue to operate, and it expected Hinkley Point C to be operating from the mid-2020s, which would help limit the gap.32

20. We asked whether there could be value in reusing the AGR sites, given the existing support in those communities for nuclear power. In particular, we asked the Department what work it was doing to give more clarity to the providers of small modular reactors about potential plans for these sites. Both the NDA and EDFE told us they were keen to make their sites available for small modular reactor development, and had held preliminary discussions with possible suppliers of advanced or small modular reactors. As these sites are already licensed for nuclear activity and close to the electrical grid, the NDA confirmed that in theory all of the sites could potentially be made available.33

Transferring the AGR stations to the NDA

21. After the AGR stations are defueled EDFE will transfer the stations to NDA who will be responsible for completing the rest of the decommissioning process. The first station could transfer as early as 2026. The NAO found there is a risk that transfer timings do not allow NDA to fully understand and assess the transferring liabilities. The NAO also highlighted the importance that the NDA does not rush the station transfer process exposing it unduly to liabilities. Aspects such as land, people, assets and contracts will need to be transferred over to NDA to enable its subsidiary, Magnox Ltd, to gain licence approval from the nuclear regulator to allow it to decommission the sites.34

22. There are still some important aspects of transfer that are yet to be agreed. The NDA and EDFE recognise there are issues around transfer that will need to be agreed but believe they have sufficient time to sort out the remaining points.35 They established nine working groups in 2021 to negotiate what will be transferred. The NAO, however, found that some issues surrounding the transfer of AGR stations to the NDA and Magnox Ltd were likely to become pressing long before transfer. These included: clarity of what the transfer means for the workforce on AGR stations; building Magnox Ltd’s capacity to take on management of the stations; Magnox Ltd becoming the site licensee at each station; agreement on how contracts with suppliers to each station will be handled; and a lack of certainty about the exact land boundary and facilities that the NDA and Magnox Ltd will receive.36 The NDA told us the cooperation between it and EDFE was “excellent”. EDFE similarly noted that both had a common interest in ensuring a seamless transfer, but acknowledged that there was a lot of detail to work through.37

23. The Department’s business case estimates that the transfer of the stations will cost £300 million, but given the uncertainties the cost and liabilities could be as large as £1.8 billion. The uncertainties include a potential need to update IT systems, the condition and nature of assets, and the cost of employee pension contribution and redundancy payments.38 The Department and NDA told us that land and people were the two biggest transfer risks. The Department explained that it was not possible to get sufficient clarity on these areas while negotiating the main framework of the deal, but recognised that it will need clarity over, for example, which parcels of land owned by EDFE will transfer over and which people and skills were needed.39 The NDA similarly recognised that there remained significant issues to be worked through, and told us that while it had a broad picture, it needed to work up specific plans for each site and each employee base and understand the implications. It explained that the cost range for the transfer of the stations reflected numbers that were not settled yet, such as the potential pension liabilities that may transfer across from EDFE.40

24. We were concerned by the number of issues still to be resolved in the time available. We enquired about progress regarding Hunterston B, the first station expected to transfer, especially as discussions around pension contributions can take time to sort out. The witnesses told us they were in discussion as to which staff would come across but it was still too early understand the potential pension liabilities as it was not yet certain which workers will want to move over to the NDA or where within the organisation would best suit their skills.41

25. We wrote to the Department and HM Treasury number of times (see Annex 1) after our evidence session and asked it to clarify what it had agreed with EDFE in terms of the land and buildings that will be transferred to the NDA, and how it planned to resolve any issues or disagreements between what will be transferred. Both departments responded and told us that a suite of legal agreements had been put in place which provided a framework for the transfer of assets and resources when sites were being decommissioned. They also explained that, in practice, the land required for decommissioning will be determined on a site-by-site basis, reflecting technical, operational, and regulatory requirements. We were told that joint planning work between EDFE, Magnox Ltd and NDA was underway to identify, prioritise and address matters relating to station transfer, and that this was “progressing towards a detailed joint plan for transfer starting with Hunterston B by the end of the year”. Further, if disputes were to arise in any of these areas, legally binding resolution procedures, as set out in the legal agreements governing the transfer, would come into force as well as governance and escalation forums if required.42

26. The long-term benefits of transferring the AGR stations into public ownership will depend on the ability of Magnox Ltd to deliver efficiencies from combining the stations with its existing portfolio of nuclear stations. The NDA told us it expected to deliver savings once the stations begin to transfer. The addition of the AGR stations will increase the NDA’s portfolio. It told us this should allow for some economies of scale and that it expected this could achieve projected benefits in the hundreds of millions of pounds and potentially into the billions. The NDA told us that it had so far saved £100 million through the use of joint stores for Magnox and AGR stations co-located at Hinkley and Hunterston sites, and that further savings might be possible once it took ownership of the stations.43

27. Delivering the benefits intended from the new arrangements will require a clear long-term delivery strategy. The current EDFE approach for these stations involves putting reactor buildings into a state of care and maintenance lasting some decades to allow radioactivity levels to decay before starting deconstruction of the reactor. The NDA will have to decide the long-term decommissioning strategy for the AGR stations. The NDA told us that it its approach for its Magnox stations has moved away from care and maintenance “across the board” to a bespoke plan for each reactor where deconstruction of the reactor can start earlier. For some of the Magnox stations radioactivity levels have decayed more quickly than previously modelled enabling the NDA to get on with the decommissioning task.44 The NDA told us that it will decide the appropriate decommissioning strategy for the AGR stations on a case-by-case basis as it builds its understanding of these stations. It did not expect to be able to take a decision until “some time” after the stations transferred.45

Oversight of the AGR decommissioning programme

28. The AGR decommissioning programme is complex, and key organisations already have substantial portfolios of work. The NDA, for instance, already has a very heavy workload decommissioning the Magnox fleet and parts of the Sellafield site to which the AGRs will now be added. The NDA’s subsidiary, Magnox Ltd, is currently responsible for decommissioning 12 nuclear power stations. The transfer of the AGR fleet will increase its portfolio to 19 stations.46 As part of our inquiry into the Magnox contract in 2020, we found that the NDA was already facing a considerable challenge in decommissioning the Magnox stations and that its poor performance had cost the taxpayer in excess of £140 million. We also found weak oversight of the NDA by the Department which had failed to detect the problems.47 Although we were informed that all the Magnox stations have now been defueled including Bradwell which has now entered the care and maintenance stage of the decommissioning process.

29. The Department told us that following its experience of the Magnox contract, it had undertaken a full review to establish whether it had the right governance and it was now confident that this was the case. It also told us that the NDA has similarly taken “really important steps in the way that it is run” including increasing its commercial capabilities and strengthening its board. It confirmed that it intended to keep governance arrangements under “continual renewal and focus” and that it would pay close attention to NDA’s development and performance but was “currently seeing a really reassuring trajectory”.48 The NDA confirmed that the new governance arrangements have been co-created between it and the Department and that it was confident that it had the team needed to take on the new work. It told us that it was “getting strong support from the Department and good challenge”.49

30. Decommissioning the AGR stations is an unusual programme compared with others in government as no single organisation has complete responsibility and authority for performance overall. The success of the programme will depend significantly on the ability of the Department, NDA and EDFE to work together effectively and resolve any problems or differences. The Department will be performing a number of roles: ensuring its decommissioning agreements with EDFE operate as intended; taking forward its normal sponsorship and oversight of the NDA; and at the same time supporting the potential development of new nuclear stations, such as at Sizewell C. The effectiveness of the Department in fulfilling these roles, while meeting its other obligations, will therefore have significant implications for the decommissioning programme as a whole.50

31. Given the centrality of its role we asked the Department whether its own role was subject to sufficient scrutiny and whether AGR decommissioning should be included in the Government Major Projects Portfolio. The Department told us that similar concerns had been raised by HM Treasury and Cabinet Office. However, the Department said that it did not think that it was appropriate for the programme to be included in the GMPP while it was being delivered by EDFE but expected it to be put on the GMPP once more stations are transferred to NDA control. We have asked the Department to explain why the programme should not be added to the GMPP sooner and therefore benefit from advice on the adequacy of the proposed transfer. The Department said that in the meantime, and in response to HM Treasury and the Cabinet Office, it was developing metrics that would be akin to the GMPP to provide that assurance. However, the metrics have not yet been developed.51

Formal minutes

Monday 16 May 2022

Members present:

Dame Meg Hillier

Sir Geoffrey Clifton-Brown

Dan Carden

Mr Mark Francois

Peter Grant

Kate Green

Sarah Olney

The future of the Advanced Gas-cooled Reactors

Draft Report (The future of the Advanced Gas-cooled Reactors), proposed by the Chair, brought up and read.

Ordered, That the draft Report be read a second time, paragraph by paragraph.

Paragraphs 1 to 31 read and agreed to.

Summary agreed to.

Introduction agreed to.

Conclusions and recommendations agreed to.

Resolved, That the Report be the Third of the Committee to the House.

Ordered, That the Chair make the Report to the House.

Ordered, That embargoed copies of the Report be made available, in accordance with the provisions of Standing Order No. 134.


Adjourned till Wednesday 18 May at 1:00pm.


The following witnesses gave evidence. Transcripts can be viewed on the inquiry publications page of the Committee’s website.

Monday 7 February 2022

Sarah Munby, Permanent Secretary, Department for Business, Energy & Industrial Strategy; Umran Nazir, Deputy Director for Decommissioning, Department for Business, Energy & Industrial Strategy; David Peattie, Chief Executive, Nuclear Decommissioning Authority; Jerry Haller, Nuclear Decommissioning Director, EDF EnergyQ1–94

Published written evidence

The following written evidence was received and can be viewed on the inquiry publications page of the Committee’s website.

FGR numbers are generated by the evidence processing system and so may not be complete.

1 Nuleaf (Nuclear Legacy Advisory Forum) (FGR0001)

List of Reports from the Committee during the current Parliament

All publications from the Committee are available on the publications page of the Committee’s website.

Session 2022–23





Department for Business, Energy & Industrial Strategy Annual Report and Accounts 2020–21

HC 59


Lessons from implementing IR35 reforms

HC 60

Session 2021–22





Low emission cars

HC 186


BBC strategic financial management

HC 187


COVID-19: Support for children’s education

HC 240


COVID-19: Local government finance

HC 239


COVID-19: Government Support for Charities

HC 250


Public Sector Pensions

HC 289


Adult Social Care Markets

HC 252


COVID 19: Culture Recovery Fund

HC 340


Fraud and Error

HC 253


Overview of the English rail system

HC 170


Local auditor reporting on local government in England

HC 171


COVID 19: Cost Tracker Update

HC 173


Initial lessons from the government’s response to the COVID-19 pandemic

HC 175


Windrush Compensation Scheme

HC 174


DWP Employment support

HC 177


Principles of effective regulation

HC 176


High Speed 2: Progress at Summer 2021

HC 329


Government’s delivery through arm’s-length bodies

HC 181


Protecting consumers from unsafe products

HC 180


Optimising the defence estate

HC 179


School Funding

HC 183


Improving the performance of major defence equipment contracts

HC 185


Test and Trace update

HC 182


Crossrail: A progress update

HC 184


The Department for Work and Pensions’ Accounts 2020–21 – Fraud and error in the benefits system

HC 633


Lessons from Greensill Capital: accreditation to business support schemes

HC 169


Green Homes Grant Voucher Scheme

HC 635


Efficiency in government

HC 636


The National Law Enforcement Data Programme

HC 638


Challenges in implementing digital change

HC 637


Environmental Land Management Scheme

HC 639


Delivering gigabitcapable broadband

HC 743


Underpayments of the State Pension

HC 654


Local Government Finance System: Overview and Challenges

HC 646


The pharmacy early payment and salary advance schemes in the NHS

HC 745


EU Exit: UK Border post transition

HC 746


HMRC Performance in 2020–21

HC 641


COVID-19 cost tracker update

HC 640


DWP Employment Support: Kickstart Scheme

HC 655


Excess votes 2020–21: Serious Fraud Office

HC 1099


Achieving Net Zero: Follow up

HC 642


Financial sustainability of schools in England

HC 650


Reducing the backlog in criminal courts

HC 643


NHS backlogs and waiting times in England

HC 747


Progress with trade negotiations

HC 993


Government preparedness for the COVID-19 pandemic: lessons for government on risk

HC 952


Academies Sector Annual Report and Accounts 2019/20

HC 994


HMRC’s management of tax debt

HC 953


Regulation of private renting

HC 996


Bounce Back Loans Scheme: Follow-up

HC 951


Improving outcomes for women in the criminal justice system

HC 997


Ministry of Defence Equipment Plan 2021–31

HC 1164

1st Special Report

Fifth Annual Report of the Chair of the Committee of Public Accounts

HC 222

Session 2019–21





Support for children with special educational needs and disabilities

HC 85


Defence Nuclear Infrastructure

HC 86


High Speed 2: Spring 2020 Update

HC 84


EU Exit: Get ready for Brexit Campaign

HC 131


University technical colleges

HC 87


Excess votes 2018–19

HC 243


Gambling regulation: problem gambling and protecting vulnerable people

HC 134


NHS capital expenditure and financial management

HC 344


Water supply and demand management

HC 378


Defence capability and the Equipment Plan

HC 247


Local authority investment in commercial property

HC 312


Management of tax reliefs

HC 379


Whole of Government Response to COVID-19

HC 404


Readying the NHS and social care for the COVID-19 peak

HC 405


Improving the prison estate

HC 244


Progress in remediating dangerous cladding

HC 406


Immigration enforcement

HC 407


NHS nursing workforce

HC 408


Restoration and renewal of the Palace of Westminster

HC 549


Tackling the tax gap

HC 650


Government support for UK exporters

HC 679


Digital transformation in the NHS

HC 680


Delivering carrier strike

HC 684


Selecting towns for the Towns Fund

HC 651


Asylum accommodation and support transformation programme

HC 683


Department of Work and Pensions Accounts 2019–20

HC 681


Covid-19: Supply of ventilators

HC 685


The Nuclear Decommissioning Authority’s management of the Magnox contract

HC 653


Whitehall preparations for EU Exit

HC 682


The production and distribution of cash

HC 654


Starter Homes

HC 88


Specialist Skills in the civil service

HC 686


Covid-19: Bounce Back Loan Scheme

HC 687


Covid-19: Support for jobs

HC 920


Improving Broadband

HC 688


HMRC performance 2019–20

HC 690


Whole of Government Accounts 2018–19

HC 655


Managing colleges’ financial sustainability

HC 692


Lessons from major projects and programmes

HC 694


Achieving government’s long-term environmental goals

HC 927


COVID 19: the free school meals voucher scheme

HC 689


COVID-19: Government procurement and supply of Personal Protective Equipment

HC 928


COVID-19: Planning for a vaccine Part 1

HC 930


Excess Votes 2019–20

HC 1205


Managing flood risk

HC 931


Achieving Net Zero

HC 935


COVID-19: Test, track and trace (part 1)

HC 932


Digital Services at the Border

HC 936


COVID-19: housing people sleeping rough

HC 934


Defence Equipment Plan 2020–2030

HC 693


Managing the expiry of PFI contracts

HC 1114


Key challenges facing the Ministry of Justice

HC 1190


Covid 19: supporting the vulnerable during lockdown

HC 938


Improving single living accommodation for service personnel

HC 940


Environmental tax measures

HC 937


Industrial Strategy Challenge Fund

HC 941


1 C&AG’s Report, The decommissioning of the AGR nuclear power stations, Session 2021–22, HC 1017, 28 January 2022.

2 The eighth station is a Pressurised Water Reactor at Sizewell B, which is not a focus of this report as it was not part of the negotiations and will not be decommissioned until 2055.

3 C&AG’s Report para 2

4 C&AG’s Report paras 3–4

5 C&AG’s Report, para 6; The estimates of decommissioning costs referred to in this report are for all eight stations – AGR and PWR stations.

6 Q 22; C&AG’s report paras 6, 1.11

7 Qq 20–22, 24–27; Nuclear Liabilities Fund, Annual Report and Accounts 2020–2021, December 2021, page 9–11

8 Qq 19, 21; C&AG’s report paras 2, 1.15

9 Correspondence from Sarah Munby, Permanent Under-Secretary of State, the Department for Business, Energy & Industrial Strategy to the Committee, Re PAC hearing on “Future of the Advanced Gas-Cooled Reactors”, dated 21 February 2022, published 28 February 2022; C&AG’s report para 1.15

10 Qq 22–24, 26–27

11 Qq 12, 19, 61

12 Correspondence from Sarah Munby, Permanent Secretary Department for Business, Energy & Industrial Strategy, and Tom Scholar, Permanent Secretary HM Treasury, re Operation of the Nuclear Liabilities Fund, dated 8 March 2022

13 Committee of Public Accounts, The Nuclear Decommissioning Authority’s management of the Magnox contract, Twenty-Eighth Report of Session 2019–21, HC 653, 27 November 2020

14 Qq 12, 64

15 Qq 12, 31–32; C&AG’s Report paras 10, 15

16 Qq 34, 85; C&AG’s report para 10

17 Qq 6–8, 38–39; C&AG’s report paras 6, 10, 2.7, 3.13

18 C&AG’s Report, paras 2.5–2.7, 2.9–2.14

19 Q 40; C&AG’s report para 2.22

20 C&AG’s Report, para 2.23

21 Qq 74, 85

22 Qq 40, 61

23 Q 85; C&AG’s report para 4.11

24 Qq 31–33, C&AG’s Report para 3.6

25 Qq 59, 60; C&AG’s Report paras 1.9, 2.3

26 Q 5; C&AG’s report para 2.2

27 Qq 60–61

28 Q 29

29 Qq 29, 64

30 Qq 3, 7; C&AG’s Report para 1.2–1.3

31 Qq 3–5

32 Q 7

33 Qq 78–79, 82–83

34 Qq 10, 53, C&AG’s report paras 12, 4.4

35 Qq 53, 54; C&AG’s report para 12

36 C&AG’s Report, para 12, 2.19–2.20 and 4.2–4.5

37 Qq 53, 57, 58

38 Qq 65, 67; C&AG’s Report para 4.6

39 Qq 53, 55, 67, 68

40 Q 68

41 Qq 65, 68, 70, 75

42 Correspondence from Sarah Munby, Permanent Secretary, Department for Business, Energy and Industrial Strategy and Sir Tom Scholar, Permanent Secretary, HM Treasury, re operation of Nuclear Liabilities Fund, dated 13 April 2022.

43 Qq 45, 65, 76–77; C&AG’s Report paras 13, 4.6–4.11

44 Q 45; C&AG’s Report case study 2, para 4.10

45 Qq 42, 45–47

46 Q 86; C&AG’s report para 12

47 Q 86; The Committee of Public Accounts, The Nuclear Decommissioning Authority’s management of the Magnox contract, Twenty-Eighth Session of 2019–21, HC 653, 27 November 2020

48 Q 86

49 Q 87

50 C&AG’s report paras 14, 2.26

51 Qq 88–89